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Similarity of bids insufficient evidence for bid rigging

A similarity or even an overlap of parts of different bids does not constitute sufficient evidence to establish a breach of national competition law. This follows from a recent Czech Competition Authority decision in an alleged bid-rigging case.(1) By this decision, the authority challenged its own approach concerning the prosecution of bid rigging. Further, the decision jeopardised legal certainty and predictability of the authority's decisions in bid-rigging cases. Through its decision, the authority has essentially provided a universal excuse and justification for bid rigging among competitors.

Facts

At the end of September 2012, the Ministry of Defence announced an open tender for legal services. The ministry's aim was to choose five law firms which would conclude a framework agreement for the provision of legal services with the ministry for three years. The maximum total value of the agreement was estimated to be more than Kr33 million (approximately €1.2 million).

Unlike other tenders, where the order of candidates is compiled on the basis of lowest price only, the ministry's tender specifications stated that the most economically advantageous offer – however evaluated under several additional criteria – would be selected. Thus, not only the hourly rate for legal services – which was set by the ministry in the amount of at least Kr1,800 (approximately €66) per hour – but also an elaborated example expert analysis were required and considered a decisive part of the evaluation of the bid.

After the winning law firms were announced, the ministry, as contracting authority, approached the authority to initiate investigations because of possible infringement of competition law in public procurement procedure. The ministry believed that the submitted bids, which overlapped in specific parts of the example expert analysis, showed signs of coordination between two of the public tender participants. According to the ministry, such overlap indicated the fulfilment of elements of bid rigging and therefore possibly constituted illegal conduct, which may have caused a distortion of competition.(2)

Legislation and guidelines on bid rigging

Bid rigging is classified as a prohibited agreement within the meaning of Section 3 of the Protection of Competition Act.(3) It constitutes an administrative offence committed in relation to public procurement procedures, but is also considered a criminal offence under respective criminal law provisions. Committing an administrative offence can lead to a ban on executing public contracts for three years, together with a fine from the authority.

In order to raise awareness of bid rigging, the authority issued two information letters(4) in 2012. The letters contain certain guidelines and indicators for bid rigging. The bid-rigging information letter defines 'bid rigging' as a prohibited agreement on the coordination of bids between competitors in public procurement procedures. Bid rigging is deemed to be an agreement between competitors not to proceed independently and not to compete before the submission of their bids. It is an agreement to place mutually coordinated and overlapping bids or an agreement not to compete at all.

The second information letter contains guidelines and an overview of bid-rigging indicators. In order to prevent or detect a cartel agreement within the meaning of the act, the authority advises that the following issues in particular be analysed:

the character of the market and competitors active on such market;

the documents provided by the bidders; and

any unusual behaviour of the bidders.

Concerning bidders' documents, the authority highlights that similar graphics and identical parts of text are indicators of bid rigging. Bid-rigging agreements are said always to have a negative impact on competition.

Decision

With its decision, the authority terminated administrative proceedings against the respective law firms for alleged bid rigging. Despite the fact that parts of the competing law firms' bids overlapped and contained indications of bid rigging under the act and the authority's information papers, the authority found no breach of the act.

It stated that the submitted bids were identical in the relevant parts of the example expert analysis. However, the authority accepted the following arguments from the law firms.

The law firms held that they had initially wanted to place a common bid and therefore prepared it together. Shortly before the deadline, they decided to place separate bids and had only the common documentation to use for their separate bids. Therefore, according to the law firms' argument, there had been no coordination of behaviour.

In its decision, the authority referred to a doctrine that derives from the European Court of Justice's case law. In cases where parallel behaviour of competitors can be observed, the authority must also consider rational explanations for such behaviour, which in their very nature do not necessarily constitute a breach of competition law. If a rational explanation is found, parallel behaviour of competitors cannot be deemed anti-competitive.(5) Therefore, the authority must analyse all argumentation thoroughly.

Comment

However, with reference to the act and imposition of harsh competition restrictions in cases of alleged bid rigging, the motives of coordinated behaviour should be irrelevant when considering a breach of respective legal provisions.

This decision is therefore questionable, especially with regard to the authority's proclaimed goal to prosecute competitors for bid rigging. It also does not align with the authority's information papers on bid rigging and its prevention and detection.

The decision could be considered a universal excuse for all kinds of prohibited agreements in public procurement procedures. Further, it highlights the authority's decision making process as unpredictable and dependent on the argumentation of parties, as this decision contradicts the authorities own guidelines on prevention of bid rigging.

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